Anand Mercantile Samaj Seva Trust Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that benefit of exemption under Section 11(1)(a) and 11(2) of the Income Tax Act is not available to “deemed income” under Section 11(3) of the Income Tax Act
Facts- During the course of assessment, the Assessing Officer observed that the assessee had claimed exemption under Section 1 1(1)(a) and Section 11(2) of the Act on “deemed income” under Section 11(3) of the Act as well. Accordingly, the Assessing Officer restricted the claim of the assessee under Section 11(2) of the Act to Rs. 73,89,082/-.
The issue for consideration here is whether “deemed income” under Section 11(3) of the Act is eligible for exemption under Section 11(1)(a) and Section 11(2) of the Act.
Conclusion- In the case of “deemed income” under Section 11(3) of the Act, where the amount is already spent by assessee for purposes other than charitable purposes, it cannot be said that the assessee accumulated such income with an intention to apply it for rightful purpose. Therefore, in view of the above observations we are of the considered view that “deemed income” under Section 11(3) of the Act is not eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Act.
Section 11 extends benefit of exemption to only “incomes derived from property held under Trust”, and “deemed” income under Section 11(3) (which uses the expression “deemed to be income of such person”) does not, going even by the literary reading of the words, fall under such categorization. Therefore, in our considered view, benefit of exemption under Section 11(1)(a) and 11(2) of the Act is not available to “deemed income” under Section 11(3) of the Act, even as on literary reading of statutory provisions. Accordingly, the A.O. is directed to re-compute the exemption available to the assessee under Section 1 1(1)(a) and Section 11(2) of the Act by excluding “deemed income” under Section 11(3) of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals have been filed by the Assessee against the order passed by the Ld. CIT(Appeals), National Faceless Appeal Centre(in short “NFAC”), Delhi in Order No. ITBA/NFAC/S/250/2021-22/1035072583(1) & ITBA/NFAC/S/250/202 1-22/1035072587(1) vide order dated 25.08.2021 passed for Assessment Years 2016-17 & 2017-18.
2. The assessee has taken the following grounds of appeals:-
Assessment Year 2016-1 7
1. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming the action of the AD.
2. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming restriction of claim of accumulation u/s 11(2) to Rs. 7389082.
3. The Learned CIT-(A), NFAC erred in law and/or facts in not considering income chargeable u/s 11(3) as income derived from property held under the trust and brought to tax without any relief which is otherwise available to primary income of the trust.
4. The Learned CIT-(A), NFAC erred in law and/or facts in not considering Ground 2 of appeal and disposing appeal considering Ground 1 as sole ground of appeal. Ground 2 read as under:
Assessing Officer has considered the income of A.M. College of Science and Technology Anand in total income of the trust eventhough credit for TDS 673816 not allowed by Assessing Officer which is unlawful and against the law, allow credit for TDS Rs. 673816.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
Assessment Year 201 7-1 8
1. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming the action of the AO.
2. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming restriction of claim u/s 11 to Rs. 26901936.
3. The Learned CIT-(A), NFAC erred in law and/or facts in not considering income chargeable u/s 11(3) as income derived from property held under the trust and brought to tax without any relief which is otherwise available to primary income of the trust.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
3. The brief facts of the case are that the assessee is a charitable trust having education as its primary object. The original return of income was filed by the assessee on 15.10.2016 and revised return of income on 16.10.2016 declaring total income of Rs. 1,43,89,080/- and claiming refund of Rs. 23,34,970/-. During the course of assessment, the Assessing Officer observed that the assessee had claimed exemption under Section 1 1(1)(a) and Section 11(2) of the Act on “deemed income” under Section 11(3) of the Act as well. Accordingly, the Assessing Officer restricted the claim of the assessee under Section 11(2) of the Act to Rs. 73,89,082/-. While restricting the claim of the assessee, the Assessing Officer made the following observation:-
“Here in this case, the assessee has gross receipts of Rs.2,52,83,936/-, out of it assessee has applied income for charitable purpose is of Rs.1,41,02,264/- which is 55.775% of gross receipts for the year under consideration. The assessee is also eligible for amount accumulated u/s 11(1)(a) of the Act at the rate of 15% of gross receipts i.e. Rs. 37, 92,590/-. From the above it is clear that after claiming revenue expenditure of Rs.1,41,02,264/- (i.e. 55.78% of gross receipts) and Rs.37,92,590/- (i.e. 15% of gross receipts), assessee is eligible for accumulation of amount u/s. 11(2) of the Act is only for Rs. 73,89,082 i.e. 29.225% (100-15 -55.675) of gross receipts. For getting benefit of exemption u/s. 11(2) & 11(1)(a) of the Act, assessee has to accumulate the amount out of previous year’s gross receipts only. Here, in this case assessee has claimed exemption u/s. 11 (2) of the Act of Rs. 1 ,30,00,000/- showing it as accumulated amount. In actual assessee is not having such amount of the year under consideration on hand for accumulation. Here in this case, after claiming exemption u/s. 11 (2) of the Act of Rs. 1,30,00,000/- assessee has shown total income applied of Rs.3,08,94,854/- and shown net deficit of Rs.56,10,918/- and set off this deficit against income u/s. 11(3) of the Act of Rs.2,00,00,000/-. Assessee has used Rs.56,10,918/- for accumulation u/s. 11 (2) of the Act out of income u/s. 11 (3) of the Act of Rs.2,00,00,000/-.
The income shown by the assessee u/s. 11 (3) of the Act is that income which was set a part in an earlier year for specific purpose of use only. If this amount is not utilized by the assessee for the specific purpose, assessee cannot take advantage for further accumulation. Out of this income u/s.11(3) of the Act assessee cannot claim further exemption either u/s. 11(1 )(a) or u/s.11(2) of the Act. Here in this case, out of the income u/s. 11(3) of the Act of Rs.2,00,00,000/-, assessee has further made accumulation of Rs. 56, 10,918/- which is not allowable.
5.5 Here in this case, assessee has created a notional deficit of Rs. 56,10,918/- and set off the same against income u/s. 11 (3) of the Act which is not is nothing but an attempt to reduce the tax liability on surplus income of the year under consideration. On plain reading of the provisions of Section 11 (2) of the IT Act, it can be seen that the provisions of this section is applicable to those cases where 85% of the income earned/received during the year is not utilized and accordingly assessee has to accumulate u/s. 11 (2) of the Act a surplus amount of Rs. 73,89,082/- only.
After considering the above facts that since the assessee has accumulated excess amount u/s. 11 (2) of the Act, than the surplus amount available for the year under consideration of Rs. 73,89,082/-, assessee has accumulated Rs. 1,30, 00, 000/-using income u/s. 11(3) of the Act which is nothing but the intention to reduce the tax liability out of taxable income u/s.11 (3) of the Act.
In view of the above facts, the claim of exemption u/s. 11 (2) of the Act is allowed to the extent of Rs. 73,89,082/- only instead of Rs. 1,30,00,000/- claimed in the return of income. Penalty proceeding u/s. 271(1)(c) of the Act is also initiated for furnishing inaccurate particulars of income.
7. Subject to the above discussion, income of the assessee trust is computed as under :
